How to Figure Out What Kind of Car Insurance You Need

Common types of car insurance include liability, collision, and comprehensive coverage. Used cars and new cars require different coverage.

September 21, 2017 ·

by Logan Utsman

There’s a lot of variation among the types of car insurance, and knowing which one is best for you can be complicated to figure out. Not only are there different types of coverage, from liability to comprehensive and collision, but there are different types of policies, rates, and legal requirements too. Picking the right car insurance for your situation can be tricky and if you end up choosing the wrong one, you could end up paying more than you need to - or risk losing a valuable investment.

Here’s what you should know when figuring out what kind of car insurance you need. In this article, Part 1 suggests figuring out what your state requires first, Part 2 walks you through the different types of insurance, and Part 3 encourages you to shop around for the best rate.

Part 1 of 3: Know your state requirements

The federal government does not expressly mandate car insurance, but instead leaves those decisions to be handled at the state level. As a result, rules will vary across the country. Most states have minimums that drivers must meet for bodily injury liability per person and accident, and property damage.

Remember, though - not all states are the same. In fact, New Hampshire does not have mandatory insurance laws while Arizona and Virginia have alternative laws that may obligate you to pay for damages from an collision you caused out-of-pocket.

With this in mind, it’s important to first check with your state’s DMV to determine what is required of you. This will not only help improve your efficiency at the DMV, but it will help empower you when talking to an insurance agent.

Part 2 of 3: Familiarize yourself with the types of car insurance

In general, there are three main types of auto insurance - liability, collision, and comprehensive. Many agents will also offer personal injury protection and uninsured/underinsured motorist protection.

Liability is what can be considered “the minimum” in most states as it covers your responsibilities in an accident where you’re at fault. This will help pay for the damages caused to the other vehicles involved.

Collision covers the damages to your vehicle - even if totaled.

Comprehensive protects your vehicle from damages out of your control, such as a tree falling on your windshield or a stolen car.

Perhaps not as common are personal injury protection, which will help pay for medical bills as a result of an accident, and uninsured/underinsured motorist protection, which will help protect you should you get into an accident with someone without insurance, or very minimal protection.

When determining which type of coverage is best for you, keep your car’s value in mind. If it’s older, you might end up spending more than you’d like to for collision insurance that may not net the best financial return after an accident.

For example, a 2005 Subaru Outback may cost $733 a year to insure with collision, despite only being valued at $3,718. Your yearly premiums thus exceed 10% of your total payout in an accident, which is your car’s value minus your deductible. 10% is generally seen as the cut-off point for collision. For most newer vehicles however, the investment into collision is well worth the price to protect such a valuable asset.

Part 3 of 3: Comparison shop for the best insurance rate

A little investment in time can go a long way when determining what kind of car insurance you need. While two insurance agencies may offer similar types of coverage, what’s included in the price you pay won’t always be the same.

Agencies can range from local independent shops, to national chains and direct sellers which omit the commission-based agent all together. What’s covered and how much will also vary, so it’s important to shop around and get quotes from more than one insurance company before making a decision.

It’s also wise to ask about discounts, such as multi-car, safe driver, and bundled insurance for your car and home. Having this comparative information will help you make a smart financial decision when picking your policy.